Peter Lindert on Piketty

Piketty’s “r > g” device, for all its amazing rhetorical power, does not take us very far. Our task of explaining and predicting inequality movements is not made any easier by the requirement that we must first predict both a “rate of return” and the growth rate of the economy. The formula r – g takes us no further than we were transported fifty years ago by the concept of total factor productivity as a “source” of growth. It will be another “measure of our ignorance.”

Here is more:

Oddly, however, for the twentieth century trends that he and his collaborators have documented so well, the relevance of the wealth/income and capital/income ratios for the income distribution is less compelling. Across countries, the levels and movements of this ratio do not correlate well with those in income inequality. Over time, there is more correlation, within Britain, or France, or Germany, or the United States. Yet, as we shall see later, the same overall movements will show up when we look at the inequality movements in incomes that have little to do with wealth, such as wage rates or in middle/lower income ratios.

Seems like Lindert needs to be reeducated by the left, LOL. Anyways he’s a hack for globalization, as am I. On a personal level, you get more for your money in a developed country, for one thing among many a middle aged man like me can have a 20 yo girlfriend, without so much raising eyebrows, but you do get to raise more than eyebrows.

Here is Lindert’s priors, from his global inequality paper. “World incomes would still be unequal under complete global integra-tion, as they are in any large integrated national economy. But they would be less unequal in a fully integrated world economy than in one fully seg-mented.”

Read “developing” not ‘developed’ above. Anyway Lindert misses the point of Piketty, which Brad DeLong picked up, which is Piketty is describing a hypothetical world that could happen, if capital has certain in-elasticities of demand, which does not appear to be the case based on historical data, but could theoretically be possible (somewhat analogous but opposite to Marx’s “capital deepening” hypothesis), and if the USA becomes like pre-French Revolution France. It’s possible but not likely, akin to runaway global warming.

Offhand, his paper with Jeffrey Williamson from 2003 seems to be a bit out of date in its conclusions, although it may hold for a two-century period. However, for more recently, Branko Milanovic finds just the opposite: global inequality across nations has recently been reduced due to the rise in particular of China, whereas inequality within nations (and global inequality measured directly at the household level) has increased.